Monday, August 6, 2012

The State Of The Kurdish Regional Government In Iraq, An Interview With National Defense Univ.'s Dr. Denise Natali

Iraq’s Kurds have been making waves both domestically and internationally recently. Kurdish Regional President Massoud Barzani has been in an extended political dispute with Prime Minister Nouri al-Maliki over the distribution of power within the state. The Kurdish Regional Government (KRG) has attracted major energy companies to invest in its oil industry, and has talked about building its own pipelines to neighboring Turkey. Those events have raised the question of Kurdish independence. Dr. Denise Natali holds the Minerva Chair at the Institute for National Strategic Studies at the National Defense University. She is the author of The Kurdish Quasi-state: Development and Dependency in Post-Gulf War Iraq and The Kurds and the State: Evolving National Identity in Iraq, Turkey, and Iran, and has researched, lived, and worked in the Kurdistan region since 1992. What follows is an interview with Dr. Natali about the Kurds’ political and economic strategy, as well as the internal situation within the KRG. She believes that talk of Kurdish independence is unrealistic, because the Kurdistan Region is economically dependent upon Baghdad, has no clearly accepted territorial boundaries of a Kurdish state, and has no regional support for its political ambitions, including from Turkey.

1. Iraq’s Kurds are making news today for two major reasons, one political and the other economic. First, Kurdish President Massoud Barzani has come out as an opponent of Prime Minister Nouri al-Maliki calling him a dictator. The thing is, the Kurdish Coalition not only supported his second administration, but also agreed to make him acting Minister of Defense, Interior, and National Security. Why would they think that he would act any different than he did before?
Kurdish Pres. Barzani launched a concerted effort to depose Premier Maliki, but might have overplayed his hand (Kurdpress News Agency)
Kurdish President Massoud Barzani’s “Maliki is a dictator” speech reflects his attempts to gain Western, preferably U.S. support, against the Prime Minister’s growing power after the U.S. withdrawal from Iraq. The Kurdistan Regional Government (KRG), at least some officials within, had hoped to use these claims and its lobbying efforts in Washington DC to ascertain a special strategic relationship between the KRG and U.S. government. This was one of the objectives of Barzani’s Washington DC visit last Spring, although it did not materialize. It also reflects Barzani’s reaction and frustration to what was inevitable: a disempowered central government attempting to reassert or regain some of the authorities and powers taken from it by the 2005 Constitution, as well as Sunni and Shiite Arab reactions to unchecked Kurdish maximalist nationalist behavior since then. Further, Barzani may have miscalculated his own and KRG importance, underestimated the staying power of Maliki, or misinterpreted his personal Iraqiya ties and KRG alliances with Ankara as sufficient backing to help unseat Maliki. 

2. The other reason why the Kurds are in the news is because they announced that they want to build two pipelines that would go directly from Kurdistan to Turkey. Wouldn’t that be a major step towards independence, and is Turkey really willing to agree to that?

These claims about building independent pipelines are more efforts to challenge Baghdad and boost investor confidence in the Kurdish region than they are realistic goals for developing the KRG’s energy sector exports. Remember, there are serious payment issues for the international oil companies (IOCs) inside the Kurdistan Region, and the KRG’s export embargo has not helped the situation or possibilities of negotiating a national hydrocarbons law. Thus, there needs to be another option that the KRG can market, since it has told its IOCs for about 5 years that “a national hydrocarbons law will soon be signed,” and here it is, 5 years later, and no law. Promising an independent line to Turkey is one way to create a new discourse and hopes for export. Note that Turkish officials have been clear and clever about the Kurdish pipeline issue, ascertaining that it will be part of Iraqi exports and also working with Baghdad to develop the current Iraqi-Turkish line to export oil from Basra, where the Turkish state company is invested.

If the issue was just about the KRG wanting to build a pipeline for independence without any external variables, it would have been done a long time ago. Yet, this pipeline issue is deeply embedded in nationalist and regional geopolitics. It is about regional states and Baghdad accepting it, given the fear of a “too autonomous” or independent Kurdistan Region. So, until the Kurdish problem or myopia about the Kurds is resolved in Turkey, I do not see such an option of a Kurdish pipeline, particularly when there is an existing line with a 1.6 million bpd capacity that is only functioning at 300,000 bpd. .

The KRG certainly can and will likely build feeder lines from inside its region to the border, which does not violate Iraqi sovereignty issues. This effort will largely help its trucking operations by lowering costs of transporting its crude to the border. But it does not resolve the key issue of having the legal right and political support to export crude across the Turkish border.

The other key challenge is who is going to invest and build a pipeline that crosses the Iraqi Kurdish border to Turkey given the legal and political ambiguity and the security issues in southeastern Turkey. Yes, some business individuals claim that private investors can do what they like and negotiate a deal to import “Iraqi Oil” even if it comes directly from the Kurdistan Region. The political realities are more important than the logic of the market and investors plans, particularly given Turkey’s worsening Kurdish problem, PKK pipeline attacks in the region, and the Syrian crisis, which has generated deep concern among Turkish officials, including Prime Minister Erdogan, about spreading PKK influence in the region, and the need to check Kurdish autonomy. The Syrian Kurds are now clamoring for their own form of federalism, which Ankara is trying to quell. Massoud Barzani will find himself in the increasingly uncomfortable situation of having raising and supported Syrian Kurdish demands, and having to control them at the same time.

What could happen, when all parties have secured their maximum benefits and leverage from their oil deals, is that the KRG and Baghdad eventually make a deal to connect the Kurdish lines to the main Iraqi-Turkish line. Even then, payment issues and control over crude would remain. 

3. The Kurds were also able to pull off a major coup by attracting Exxon Mobile, Chevron, and now Total to invest there. How do you think those deals will change the relationship between Irbil and Baghdad, because the latter has always called the Kurdish oil deals illegal?
Kurdistan has been able to attract Exxon, Chevron, and Total to invest in its oil industry (Dow Jones)
The deals have certainly exacerbated the relationship, although they are not the only reason why it has deteriorated. They come at a time when the KRG (or Barzani) is trying to unseat Maliki, the KRG-Barzani Kurdistan Democratic Party (KDP) forces are training Syrian Kurds, and the KRG is deploying Kurdish peshmerga in disputed territories, all of which are further antagonizing Baghdad and Sunni and Shiite Arab communities and feeding Iraqi nationalism. 

Still, despite all of the rhetoric about the deals being “illegal” there are some indications that Baghdad has indeed, recognized the presence of IOCs in the Kurdistan Region, and therefore they may be regarded as “semi-illegal” depending upon where they are located and by whom. Baghdad has allocated partial IOC payment in the 2012 budget, and the central government recently included the KRG oil activities in its second Extractive Industries Transparency Initiative as a means of being certified by the organization. Still, the real recognition is based on payment, which Baghdad is not willing to make, at least not on the KRG’s Production Sharing Contracts generous terms. The status quo is likely to continue for the short and medium term, since signing a national hydrocarbons law at this moment is neither in Baghdad or Erbil’s interest. Baghdad is producing over 3 million bpd, and the KRG has much money to gain from more sign on bonuses and larger companies that will enter its market to buy out or merge with the smaller IOCs in need of payment.

4. Would it be wrong to say that the goal of Kurdistan’s oil policy has always been to eventually get independence from Baghdad?

I would say that this is one of their goals, but not the only ones. There are some Kurdish officials who are more pragmatic, and know that this idea of independence is unrealistic, so they hope to use the oil deals to gain more revenues, develop patronage networks, and attain international recognition for their region in the long term. A lot of this is about economic development of the Kurdistan Region, and its neglected infrastructure.

5. Within Kurdistan there have also been some major changes. First Nechirvan Barzani has returned as the regional premier. What was he known for when he was prime minister the first time around, and do you think this time will be any different?

He is known, among other things, as the person who turned Irbil around. Nechirvan Barzani is referred to as “The Developmental Prime Minister” for the massive investments and projects he initiated, alongside the active Irbil governor, Nowzad Hadi.  If you saw Irbil in the 1990s and even up to 2007, you would understand the magnitude of this transformation. Irbil used to be the place that you would drive through and avoid.  Now it is the place to get employed, and to buy property.

Nechirvan Barzani also is known for being a reformer of sorts, which is a difficult thing to do inside the conservative Kurdish region. He pressed for the signing of an honor-killing law, released many journalists who were detained or arrested by other KDP officials, and has been encouraging of the young populations and their educational development. 

6. Another thing going on with the Kurdistan Regional Government (KRG) is that they are finally talking about integrating the separate Patriotic Union of Kurdistan (PUK) and Kurdistan Democratic Party (KDP) Finance and Peshmerga ministries. Why is that finally happening now, and will the merger be successful?
The KDP and PUK's peshmerga have only merged on paper, and remain under each party's control
This is not happening in reality, and will not happen because the revenue issues are too sensitive, particularly given the immensity of profits from the oil contracts. The Finance Ministry, alongside the Ministries of Peshmerga Affairs and Interior, are key dossiers that are highly important to each party. These three ministries may be unified on paper and through media statements, but each party’s politburo and key leaders retain control of them. The two parties still do not fully trust each other enough to expose them fully under a unified ministry. Look at the way that the 2012 Iraqi Kurdish budget was passed, it was not fully disclosed and coordinated between the PUK and KDP, despite protestations from the Change List and other opposition groups.

8. How do the PUK and KDP get along today?

The strategic agreement signed in 2006 between Massoud Barzani and Jalal Talabani divided power, authority and revenues between the KDP and PUK on a 50-50 basis, with Barzani responsible for the Kurdistan Region and Talabani and the PUK for Baghdad.  As Barzani and KDP power increased in the region, and the PUK and Kurdish influence in Baghdad declined after 2010, the nature of this agreement started to dissipate, even though the leaders insisted on its relevance. By 2010, the actual power distribution was more like 80-20, in the KDP’s favor, and this is what essentially exists today. This distribution does not indicate popular support for particular leaders, but rather, who is in control of the functioning of government, finances, and decision-making.

There have been increasing tensions between the KDP and PUK since the Hashemi affair, Barzani’s Maliki is a dictator speech, and his attempts to press for a no-confidence vote against Maliki. The PUK, as well as the Change List, has not fully supported Barzani’s inflammatory position with Baghdad, and did not back the no confidence vote. The PUK and Change List also are expressing increasing concern about what they perceive as unilateral behavior by Barzani, and have also started seeking to fortify their border areas by enhancing economic ties with Iran.

Still, the parties do not have significant enough differences when it comes to advancing Kurdish interests in Baghdad. They do not have that much room to differ for fear of losing Kurdish support inside the Kurdistan Region, but the cracks in the relationship are opening.

9. Kurdistan is also due for provincial elections, something that hasn’t happened since 2005. How do you think those will turn out not only for the ruling KDP and PUK, but also for the opposition parties?

The elections have been postponed again, and when they do happen it is likely that the two parties, given the rising divisions, will not run on the same ticket as they did in the previous election. It would be an important election for opposition groups, because they need to assert their influence at the provincial level. Still, it all depends upon how free the elections really are. In principle, the Kurdistan Islamic Union in Dohuk should get about 17-20% of the vote, but there is no guarantee that the outcomes will reflect popular support.

10. In the rest of Iraq, the government runs almost everything, and is the major employer, is that any different in Kurdistan?

Not at all. The KRG has become an even larger social-welfare government than that of previous Iraqi governments. About 76% of revenues are allocated to public sector salaries with the society living off of oil rents from Baghdad. This will be a very difficult function to lessen as local populations are becoming increasingly dependent on the KRG for their livelihoods, education, and healthcare, and do not have a mentality of assuming responsibility for their own social welfare needs. This is historically and politically the government’s role, and it is continuing with greater oil wealth inside the Kurdistan Region.

Despite the presence of IOCs and companies, the economy is controlled by the two main political parties. The vast majority of projects are joint venture with the KRG, and not reflective of real foreign direct investment that is independent of the government. The risk here is that if Baghdad ever cut off the KRG budget, in part, these projects would be at risk. It happened for several months in 2008, and several small companies were not paid, and had to close. The other problem is that there is no developed free market or private sector, and an alternative for the young people and a civil society to take root apart from the government. It can assure stability, but not political or economic opening.

11. Another major issue is corruption, what does that look like?

I cannot measure corruption in the Kurdistan Region or any other part of Iraq outside of anecdotal evidence. Aside from its political and legal implications, it can have serious negative consequences on economic development and growth, and of course act as a disincentive for investment. The one area of concern is the opaqueness of the KRG means of negotiating oil contracts, which should be conducted as open bidding rounds similar to those conducted in Baghdad, and not behind closed doors between individuals. This would be helpful to the KRG because it could fend off criticisms from local populations who are increasingly critical of the secretiveness of the deals, and also to show Baghdad of their transparency. Publishing partial contracts on line and in English is not a convincing measure.

12. A major concern of the Kurds has been the disputed territories like Kirkuk. Article 140 of the 2005 Constitution was supposed to resolve that issue, but has never been implemented, and doesn’t look like it ever will be under the current leadership. How hard do the KDP and PUK push 140 with Baghdad or is it all just rhetoric?

Article 140 is not going to be implemented, because it is based on a Constitution that does not have full support by the Iraqi population, and is interpreted in so many different ways by different groups. Also, the changing political context and incentive structures have altered the way that the KRG has addressed the article 140 issue. From 2005-2006, when there was no real oil development to discuss, when relations with Ankara were tense, and when the first ‘referendum’ was supposed to occur, there was intense daily lobbying and discussions in all KRG media sources in the region. Radios, television, and newspapers all focused on Kirkuk and article 140. It was all encompassing to daily life.  Then the referendum deadline passed without a referendum, the KRG started to focus on energy sector development, Erbil relations with Ankara improved, and coincidentally, the Kirkuk issue seemed to have become less pressing, at least in the public discourse. Certainly, Kurdish claims to Kirkuk remains a key issue for the KRG, alongside the other disputed territories, but the KRG has started to focus on what it thinks is more attainable, and in its current interests: oil based disputed territories where it has signed contracts with IOCs. Instead of clamoring for article 140 to be passed, it has stationed its peshmerga in Ninewa and is trying to coopt local Yazidi and Christian population to support the KRG. 

13. Do you think the ruling parties are just happy maintaining the status quo with the territories, because they do have de facto control over almost every aspect of them from administration to security to the economy?

I think this is their strategy for the moment, because there is nothing else they can really do other than assure their peshmerga presence, and attempt to gain local support for the KRG, particularly in mixed areas. I would not say that they are “happy,” but settling for what they can get or realize at the moment, and if there is an opportunity to get more, they certainly will try to do so. They do not have control over all the territories equally, and shifts in local sentiments and power structures have worked against the KRG in some districts in Diyala, Kirkuk, and Mosul.

14. Finally, do you think Kurdistan will ever be able to become independent?

No. It is not in the interest of any regional state, and they would not permit it. The KRG also lacks an independent revenue source, and is highly dependent upon Baghdad. Even then, what would the boundaries look like? If the KRG would settle for current day Dohuk, Irbil, and Sulaymaniya, then some Iraqi populations at this point would not resist. Yet, the KRG vision of an independent Kurdistan is one inclusive of all disputed territories, which is a red line for Sunni and Shiite Arabs. In this case, Iraq would not permit it as well.


Steve Donnelly, AICP said...

Great interview. Very informative.

Confirms the ongoing problems with the independence scenario. Oil, its distribution, and benefits allocations have broader relevance than to KRG alone, and external factors (neighbor issues) are equally important.

Sub-text: Even KRG has an interest in Iraq's stability and integrity, despite legitimate and significant issues between the two.

Joel Wing said...

Unfortunately, the political disputes are obscuring the common interest.

Anonymous said...

hhh, really unilateral point of view, Kurdistan is not that hell of problems you are talking about.
indpendence, corruption, ruling parties relations, pipelines and almost all of your analysis were based on hate towards Kurds in general, you concluded it with your "No" in last question's answer. you forgot Syrian Kurdistan affect, Israel affairs, Europe's and even turkey's energy needs, russia and USA plays.

Joel Wing said...


You're entitled to your opinion and to disagree with the interview. If your argument is right however, then Kurdistan must be full of self-hatred. The reason why people protested for months in Sulaymaniya were because of the ruling parties and corruption. The reason why the Change List was formed was dissatisfaction with the PUK and corruption. The opposition parties in the Kurdish parliament have also brought up the lack of transparency over the region's oil deals. There are plenty of other examples or is your point that anyone that brings up these issues hates the Kurds?

Anonymous said...

Joel, hate is something very obvious in the article and let me not go into that discussion, myself one of those people who voted for change list, i can assure you that, its the normal and the healthy way of complaining, the critics on public services and other internal affairs (protests and opposition in parliament) look at demonstrations in middle east's first democratic country "Israel". regarding national issues with all foreign forces, the opposition and the ruling parties are on the same line, and i think that's what defines the future of Kurdistan and its people. one more thing the interviewed guy forgot, is people's right of self determination. 95% of people in Kurdistan, with all kind of nationalities, are with an independent Kurdistan, which means readiness to give sacrifices once more.

Joel Wing said...

To me, it seems like the younger generation wouldn't mind independence, but the leadership is much more conservative.

Not only that, but I tend to agree with Dr. Natali. Until the KRG can gain its own income, it can't declare independence. The national budget from Baghdad accounts for 95% of the KRG's budget. Kurdish oil is not going to be able to provide that kind of money unless Turkey agrees to independent pipelines, and it has refused to do so, and I don't think it will anytime soon either.

Kurdistan has a larger public sector than the central government, so while there may be a will in the KRG for independence, there's not the means right now.

Anonymous said...

to me,a 27 year Kurdish, not only myself but i cant find a friend of mine in Kurdistan who cares about Iraq and calls himself Iraqi, the fundamental and the ideology is fixed, we are Kurdish from Kurdistan. so focus on politic aspect of independence not the nationalist ideology of Kurdish people. i agree we have a high rate of public sector, but not more than Iraqi counterpart. Kurds have learned from history all kind of challenges, i guess budget cut will be hard, but Baghdad cant do that, think about Kirkuk's oil, which will be under control of Peshmarga within 24 hours.that looks more like Kurdistan cuts Iraq's budget not the other way.

Joel Wing said...

Here's some rough economic numbers I have for the KRG.

The Kurds contributed 5% of less to the national budget, and get around 10% in return. That portion of the national budget funds 95% of the KRG budget. That makes Kurdistan like the rest of Iraq dependent upon southern oil.

The government is the largest employer in Kurdistan. Employs 22% of population, 60% of full time work, and an even larger portion get government pensions.

The economy of the Kurdish region is based largely upon imports, and those imports are largely bought with government funds.

You brought up the Kirkuk field, that is the oldest in the country and its production has seen huge declines in recent years. It needs massive investment and renovation, and even then does not compete with the oil in southern Iraq. You would also need Turkey to agree to export that oil and it has not shown any inclination towards that.

Basically, if you pull the plug on KRG funding from Baghdad the economy would largely collapse.

Again, I don't doubt the desire for independence amongst Kurds. It is just economically unfeasible right now without an independent source of income.

Anonymous said...

Joel, did you interview Denise, yourself?

Joel Wing said...

Yes all the written material on the blog is done by me.

Anonymous said...

what if somebody translates this interview to another language, would that be ok with you?

Joel Wing said...

Email me the details and we can work it.

Anonymous said...

I think this lady does not know much about Kurdistan, and i really feel sorry for the institute she works for and the AUIS who pay her salary to provide this very weak analysis. The situation in Kurdistan is much more complex than the ABC yes/no style she is using.

Anonymous said...

Dear Dr. Denise Natali,
No Kurd should be surprised by your views and such analysis. At the end of the day, you and other “scholars” are coming to Kurdistan with certain agendas. The good people of Kurdistan were very naïve when they welcomed “scholars” like you and the genius” Michael Robin, who gained good academic experience in the region and gathered sufficient information to sell it to his chiefs. He then did his utmost to defame the Kurds through accusing their system of corruption. He forgot that everybody knows the level of corruption within the political system in the Middle East and especially in Kurdistan region where the tribalism is still ruling.
You and others who have similar view as yours will never be happy to see an independent and stable Kurdistan simply because a free Kurdistan will not give you much excuse to intervene in the region and play the “Kurdish card” against the regional powers any longer.
You also have to realise that independence has never been granted. It has always been achieved by determined people with will power. For example, the Jewish people were expelled, chased and oppressed in different parts of the world. But their will power and their clever use the political developments facilitated the creation of a democratic state that is surrounded by barbaric regimes for more than 60 years now and it is flourishing. It also does not have many natural resources and man power in comparison to Kurdistan Region.
I hope Kurdish people read views of everybody who speaks about the Kurds in order to know their views but I wish they will never give weigh to such views as yours. I am sure and the majority of the Kurds know that the storm of change is blowing in this particular part of the world in and it will give the great opportunity that Kurds have been awaiting for for decades.
Mohsn Khanaqah

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